annual report - Tenaga Nasional Berhad

Notes To The Financial Statements42 FINANCIAL RISK MANAGEMENT (CONT’D.)(e)Fair value (Cont’d.)(i)On balance sheet (Cont’d.)Financial liabilities (Cont’d.)The method by which fair value information was determined and any significant assumptions made in itsapplication are as follows:• quoted shares and marketable securities – quoted market prices at balance sheet date• loans to subsidiaries, amounts due from subsidiaries and staff loans – future contractual cash flowsdiscounted using dealer quotes of interest rates for similar loans• bank overdrafts, cash and cash equivalents, receivables and payables with a maturity period of less than oneyear (all of which were subject to normal credit terms) – carrying value at balance sheet date• borrowings other than bank overdraft – future contractual cash flows discounted at current market interestrates available for similar financial instruments• vacant property provision – cash flows discounted using a discount rate that reflects current marketassessments of the time value of money and the risks specific to the liability• financial guarantees given to third parties – quotation from bankers in respect of the amount required tosettle the contingent obligations at the balance sheet date• forward foreign exchange contracts – difference between the spot exchange rates and the contractedforward exchange rates at balance sheet date, applied to the contracted sum• interest rate swaps – present value of estimated future cash flows calculated using forward rates(ii)Off balance sheetThe financial derivative instruments are used to hedge foreign exchange and interest rate risks associated withcertain long term foreign currency borrowings. The contract notional principal amounts of the derivative andthe corresponding fair value adjustments are analysed as below.Fair values of financial derivative instruments are the present values of their future cash flows and are arrived atbased on valuations carried out by the Company’s bankers. Favourable fair value indicates amount receivableby the Company if the contracts are terminated as at 31 August 2008 or vice versa.[ Tenaga Nasional Berhad ] [ Annual Report 2008 ]268